Get Ready For The Uber-Like Economy

The shift to autonomous cars will have far-reaching effects that go well beyond the loss of a steering wheel. In fact, it could completely shake up the automotive ecosystem and broad swaths of the economy that were largely built around and in cars.

Carmakers are now trying squeeze every penny out of the cost of electronics for assisted and ultimately autonomous vehicles to get that price somewhere in the neighborhood of $5,000 to $8,000. Given the complexity of functional safety technology, and the need to comply with all of the rules for supply chain traceability and failover, this appears to be optimistic. Prices could rise significantly, which at least in the short term isn’t all bad for chipmakers and tools companies. But it may put cars outside the price range of what many people are willing to pay for transportation, driving a conversion from car ownership to cars as a service.

This raises some challenging questions. The implications of not owning a car at all are daunting. If you can’t actually drive a car, what determines the difference between one brand and another? This may be simply a matter of first-class seats on a plane versus coach, but unless you’re driving long distance most people won’t notice. And if you don’t have to own a car or two, what else can you do with that garage? Or the money spent on car insurance. Or the time you spend taking the car to a commercial car wash, or the shop to get new tires, or the dealer to get the car serviced?

As most economists are quick to point out, for most people cars are the most underutilized large purchase item they own. Vehicles sit idle for 95% of the time, on average. Moreover, at least 50% of the trips they take when they are used are wasted. If you go to the store, you’re actually only fully utilizing the car one way, which is to haul groceries or other purchases back to your home. In cities, an estimated 30% of all traffic (give or take a few percentage points) is drivers searching for a parking spot. That means there is a need for far fewer cars in general, and the cars that do get built need to withstand heavy usage over much shorter periods of time.

Because they will be driverless, there is no need for insurance. That will be a liability issue for the carmaker and its suppliers. There will be far fewer car accidents, as well, which means fewer trips to the emergency room, fewer body repair shops, and possibly the end of auto parts stores. And because the differences between one model and another will diminish, there will likely be fewer carmakers. In fact, the real value will be in the electronics and the data, which will be able to track market trends much more closely than people visiting stores.

Put all the pieces together and the shift to autonomous vehicles, when complete, will encompass more than just hopping in your car and telling it to take you to dinner or the movies. It will drive a fundamental restructuring of entire economies and people’s lives, including how they spend their time and where they spend their money.

Transportation has a value that normally gets lost in a jumble of independent transactions, such as paying for car insurance or replacing windshield wiper blades. But with autonomous vehicles, it will be very quantifiable. Is it really worth hiring a car to drive a few blocks, or would you rather walk and save the money? Or are you in such a rush that you’re willing pay extra to get somewhere quickly, including a shorter wait for your car to arrive? And do you want a guarantee that your car will be clean and have WiFi, or is a cheaper option good enough?

In short, what will life be like in an Uber type of economy where people never learn to drive because there is no need? And can you even get to work if you don’t have a smart phone to summon a car? These are all questions for which the answers are unknown. But collectively, they will have a big impact on almost every facet of society and business as the automotive industry transitions to autonomous vehicles.

Ed Sperling

1 comments

Costs shouldn’t go like that and ,in fact, anyone looking at such costly solutions, will fail. It’s not about just getting it done, it’s about getting it done at a reasonable cost, otherwise you don’t have a viable product.
Part of the hardware will be used for lesser ADAS features so not all costs are additive.Time brings lower costs too as the hardware and software improve by a lot.

Nissan today with the new Leaf charges 600$ for the Level 2 option, why would level 5 cost more than that in 5 years from now? We might see a x100 to x1000 improvement in overall perf by then when you consider the hardware, software and what’s in-between.
Tesla with Model 3 has hardware that they hope can be sufficient for Level 5 in all cars but they charge an absurd 8k to enable Autopilot – big pharma mentality, overcharge for a safety feature, deeply unethical. Anyway, at that price the attach rates will be very low , even long term , meaning that a much much lower price, that democratizes autonomy and gets attach rates to 80%+ , would generate similar revenues while creating a lot of marketing value and generating more data. They would be better off including the feature in the base price in a couple of years from now- better off from all points of view, revenue and marketing- but a 1000-1500$ price would also work well enough.
Average car ASPs are also worth considering, US must be at some 34k$ and Germany close to that too.

Car as a service will be subscription based so folks will use cars more. At the start, even people that own cars will get a subscription. In the most developed nations will be cheap enough and the car much nicer than what people own so they’ll end up transitioning anyway.
You will have many classes of vehicles and driving can be a thing too even with CaaS- the human can be fully in control but that adds insurance costs or the AI could supervise the human and ensure safety.
The cabin will be larger and larger, you have to remember that the consumer is not rational, you can’t do CaaS with a tiny 2 seater, the other guy will do it with a car that’s 3 times nicer but at 20% higher costs and consumers will chose the extra comfort and luxury. At the same time, the service provider will try to get the most out of it, higher and higher ARPU so they will push nicer and nicer rides and try to get people to pay for them. Marketing is also a factor.
Engineers might favor efficiency but the consumer will favor comfort, luxury and image at a price they can afford.
So we’ll see tiny cars to some extent but we’ll also see sports cars, convertibles, very large SUVs and sedans and also limos with a hot tub or semi trucks that are condos on wheels. If there is demand for anything, someone will meet it. In developing and rural, buses will have a role to play too while car sharing (as opposed to car as a service) can survive.
Consumers want to get as much as they can afford and the service provider wants to get payed as much as possible. That’s what defines the hardware, not reason and efficiency.